richard5za wrote:jdcpapa wrote:Earnings affect stock prices. Inflation or deflation affect the cost of goods and services. Hence, it could be argued that inflation or deflation is "about changes in PE ratios".
The PE ratio is the value that investors place upon stocks; the price of the stocks is more influenced by the ratio than by th earings.
In a stock market boom the ratio can be 20 but at the bottom of the bear only 5 or 6. If you examine the history of S&P 500 PE ratios you will see what I mean. OK I have a stock with a PE ratio of 20 a price of 100 and earnings of 5. If the earnings fall by 20% and the ratio stays at 20 then the price drops by 20%. But if the ratio drops to 5 and the earnings remain unchanged the price becomes 25 or a drop of 75%.
If you do the math every which way you will see that the ratio is the more important component; it is the valuation that investors place upon the stocks.
Changes in valuations by themselves are neither inflationery nor deflaionery - there needs to be a monetary transaction involving goods or services for an effect to be created.
Higgenbotham wrote:Just went short the 15% position again this morning from about S&P 1195. This is the first place I think the S&P could top out but my guess is it's still going to go quite a bit higher.
Higgenbotham wrote:I'm going to play for a high into September 26 or October 5. If there's a plunge into October 5, I will try to catch a little rebound with a small position.
richard5za wrote:Higgenbotham wrote:I'm going to play for a high into September 26 or October 5. If there's a plunge into October 5, I will try to catch a little rebound with a small position.
Higgie, from a chartist's view point I don't think that S&P is going above 1215 again for a very long time, probably years, maybe a decade. Its about here that I have been seeing a resistance point which wasn't breached despite a few attempts. It closed at 1167 last night and I personally suspect that a significant fall is on the cards. This is just from a charting perspective. Charting gives one buy and sell signals and there has been a strong sell signal for some time. It doesn't give you timing so I can't comment on your 5 October date. If you asked me "Where will S&P be at the end of the year?" my answer would be "I have no idea, but its trend is now down"
But good luck. Hope you make a big, big bundle!
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